Fiscal stimulus packages to COVID‐19: The role of informality

Ceyhun Elgin, Colin Williams, Gamze Oz‐Yalaman and Abdullan Yalaman

Journal of International Development, 2022, vol. 34, issue 4, 861-879

Abstract: In this paper, we use a novel cross‐country dataset to investigate the relationship between the prevalence of the shadow economy and fiscal policy responses to the economic crisis induced by the pandemic. The finding is that countries with a relatively larger shadow economy before the pandemic have adopted a smaller fiscal policy package. The results are robust to different econometric specifications, including an instrumental variable estimation. This reinforces the wider literature that countries (especially those with larger shadow economies) generally follow a procyclical policy as opposed to the optimal and countercyclical one.

Date: 2022
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https://doi.org/10.1002/jid.3628

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jintdv:v:34:y:2022:i:4:p:861-879

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